* Prices of gold, soybeans and other commodities soared, pushing the key Commodity Research Bureau index of 21 commodity prices to its highest level in more than 2 1/2 years. Inflation-sensitive gold rose to a three-year high. Oil prices also rebounded.
* Stocks slumped on speculation that rising commodity prices could prompt the Federal Reserve Board to nudge up interest rates to stave off renewed inflation. The Dow Jones industrial average tumbled 34.04 points to 3,449.93.
* Interest rates closed mostly higher, although long-term rates were surprisingly well-behaved despite the surge in commodity prices.
Soaring soybean, grain, precious metals and coffee prices helped drive the CRB index to a 21-month high, rekindling concerns about inflation. The CRB index, which tracks the performance of 21 commodities, jumped 5.29 points to 217.30, a 2.5% rise.
Leading the gains, soybean futures surged to their highest level in four years, amid mounting concerns that record rainfall in some of the nation's largest producing states will damage crops.
Soybeans for November delivery shot up 30 cents--the maximum allowable per day--to $6.97 3/4. The limitless spot July contract rose 39 cents to $7.03, the first time soybean prices topped $7 since 1989.
The unprecedented wet weather this spring and summer in the Midwest has hurt the corn and soybean crops, and more rain is forecast. "The fundamentals we have we've never had before," said Bill Biedermann, director of research of Allendale Inc.
Meanwhile, in precious metals markets, the August gold contract on New York's Commodity Exchange jumped $6.40 to $393.10 an ounce, continuing the dramatic rally that began in the spring.
Experts say the gold market should continue to benefit from technical factors and fears of rising U.S. inflation. Many predict a run to about $420 an ounce.
Coffee prices at the Coffee, Sugar and Cocoa Exchange bounded higher after seven Latin American countries agreed during the weekend to withhold 20% of their coffee exports to boost prices. The plan is to become effective Oct. 1. September coffee rose 6.95 cents to 71.65 cents a pound.
Oil futures rebounded as prospects for an immediate resumption of Iraqi crude exports faded. August crude oil closed 34 cents higher at $18.29 a barrel on the New York Mercantile Exchange.
Blue-chip stocks plummeted under the weight of fresh inflation fears.
"The recent events show that the market is totally dependent on interest rates and inflation trends for directional movements," said Robert Stovall, president of Stovall/21st Advisers.
Analysts said the stock market showed little reaction to the economic summit that begins today in Tokyo. Japan, Britain, France, Italy, Canada, Germany and the United States will discuss global economic issues at the three-day meeting.
In the broad market, declining issues led gainers 1,131 to 855 on the New York Stock Exchange. But volume was moderate at 233 million shares. And the NASDAQ market of smaller stocks suffered minimal damage: The composite index fell 2.27 points to 702.22.
Among the market highlights:
* Among gold shares, Sunshine Mining gained 3/4 to 3 1/2, Echo Bay Mines rose 3/4 to 13 3/4 and Pegasus Gold was up 1 1/4 to 26 7/8.
* General Motors added 1/2 to 44 1/8 as analysts put shares of the giant auto maker on their recommended lists.
* In the technology sector, Adobe Systems slumped 3 3/8 to 55 3/4. Soundview cut its rating on the computer firm to "sell" from "hold" and lowered its 1993 earnings estimate. Soundview also cut its 1993 and 1994 earnings estimates on Hewlett-Packard, which lost 5 to 75 1/2.
Tandem Computer shed 1 1/2 to 10 1/8. It said its third-quarter results will be below analysts' expectations.
Overseas, London's Financial Times 100-share index rose 9.6 points to finish at 2,848.1, while Frankfurt's DAX 30-share index ended 8.70 points up at 1,700.87. In Tokyo, the 225-share Nikkei average was up 206.72 points at 19,829.78.
The surge in commodity prices cast a pall over the Treasury market, sending bond yields rising after they had fallen to record lows early in the session.
The yield on the Treasury's main 30-year bond--which set a historic intra-day low of 6.62% in early London trading, the lowest level since the Treasury began selling 30-year bonds 16 years ago--closed at 6.68% in New York, up from 6.66% on Friday.
Shorter-term rates rose more sharply. Rumors again peppered the market that the Fed is ready to raise short rates to fight inflation concerns.
The dollar rose amid the turmoil. It closed at 1.704 German marks in New York, up from 1.698 on Friday, and at 108.85 Japanese yen, up from 108.55 on Friday.